ESZTERGOM, Hungary: In the weeks that followed Russia’s invasion of Ukraine, western Europe’s big economies began to falter. But further east it was still boom-time thanks to double-digit wage increases and generous state handouts in some countries.
Not any more.
A sharp slowdown in retail sales and plunging confidence indicators show that the cost of living crisis has caught up with Europe’s eastern wing, where people now face a harsh reality check as stubborn double-digit inflation erodes their incomes while food price rises top 15-22 per cent and energy costs soar.
As household consumption takes a hit, analysts are downgrading their GDP forecasts and the risk of a Europe-wide recession looms.
Families have started to tighten their belts. Poles are taking shorter holidays, Czechs are saving on restaurant bills while some seek second jobs, and in Hungary – where food inflation alone was an annual 22.1pc in June – people are cutting down on grocery bills and purchases of consumer durables as a slide in the forint currency pushes up import prices.
“I went into the bakery one day and a loaf of bread cost 550 forints. I go in the next day and it costs 650. For God’s sake!”, exclaimed Lajos, a 73-year-old man shopping at a market in the northern city of Esztergom on the Danube river.
Lajos said the surge in food prices had consumed some of his monthly pension and he would not be able to pay higher utility bills, which will rise after the government last month scrapped price caps for what it called higher-usage households.
Across Hungary, retail sales growth slowed to an annual 4.5pc in June from 10.9pc in May, with furniture and electronic goods sales down by 4.3pc, suggesting the impact of huge tax breaks and fiscal transfers from Prime Minister Viktor Orban’s government before April’s elections has now faded.
Polish retail sales growth also slowed to an annual 3.2pc in June from 8.2pc in May, while Czech adjusted retail sales excluding cars and motorcycles dropped by 6pc year-on-year in June after a fall of 6.6pc in May, data showed yesterday.
Data from various restaurant payment services, like Sodexo, have shown falling spending in restaurants in the Czech Republic as well. The STEM polling agency’s latest survey in June found 80pc of Czech households were cutting back or limiting their purchases because of fast-rising energy bills.
Czech consumer confidence hit a new low in July, according to the statistics office’s monthly survey, while a survey by think-tank GKI showed the Hungarian consumer confidence index in July plunged to its lowest level since April 2020 during the first wave of the Covid-19 pandemic.